1. At its date of incorporation, Watts Inc. issued 100,000 shares of its $10 par value common stock at
$11 per share. During the current year, Watts acquired 20,000 shares of its common stock at a price of $15 per share and accounted for them by the cost method. Subsequently, these shares were sold at $13 per share. There have been no other issuances or acquisitions of its own common stock. What effect does the sale of the treasury stock have on the following accounts?
Retained earnings Paid in capital sale of treasury stock
A. Decrease Decrease
B. No effect Decrease
C. Decrease No effect
D. No effect No effect
2. Ten thousand shares of $10 par value common stock were issued initially at $12 per share. Subsequently, one thousand of these shares were acquired as treasury stock at $13 per share.
The cost method of accounting for treasury stock is used. What is the effect of the acquisition of treasury stock on each of the following?
Total paid in capital Total stockholders' equity
A. No effect No effect
B. No effect Decrease
C. Decrease No effect
D. Decrease Decrease
3. Munn Corp's records included the following stockholders' equity accounts at December 31, 2016:
Preferred stock, par value $15, 30,000 shares authorized $255,000
Common stock, par value $5, 100,000 shares authorized 300,000
Paid-in capital-preferred 15,000
Paid-in capital-common 50,000
Treasury stock, 9,000 common shares, at cost 72,000
The number of outstanding shares for each class of stock at December 31, 2016 is
Common stock Preferred stock
A. 60,000 17,000
B. 61,000 18,000
C. 51,000 17,000
D. 51,000 18,000
E. 61,000 17,000
4. Taft Inc. declared a $625,000 cash dividend on January 2, 2016, payable on January 20, 2016, to stockholders of record on January 12, 2016. The dividend is permissible under the laws of the state in which Taft is incorporated. The following information was taken from Taft's financial statements:
Net income for 2015 $ 90,000
Paid in capital at December 31, 2015 475,000
Retained earnings at December 31, 2014 450,000
In the journal entry to record the declaration of the cash dividend on January 2, 2016,
A. Retained earnings should be debited for $540,000.
B. Paid in capital should be debited for $85,000.
C. A and B.
D. Neither A nor B.
5. On July 1, 2016, Elbert Inc. declared a 1 for 5 reverse stock split when the market value of its common stock was $2 per share. Immediately before the split, the company had 10,000 shares of $5 par value common stock issued and outstanding. As a result of the reverse stock split, par value per share
Remained unchanged at $5.
Increased by $15.
Increased by $25.
Increased to $25.
6. On June 30, 2016, when Wang's Co.'s common stock was selling for $35 per share, its capital
accounts were as follows:
Common stock, par value $10, 200,000 shares authorized, 60,000 shares issued $ 600,000
Paid in capital 1,400,000
Retained earnings 4,200,000
Treasury stock at cost (5,000 shares) 310,000
On July 1, 2016, a 100% stock dividend was declared on issued shares. The dividend was distributed on July 15. What is the balance in retained earnings after recording the declaration of the stock dividend?
A. $3,600,000.
B. $3,650,000.
C. $3,560,000.
D. $2,100,000.
7. Refer to the previous question. Assume the stock dividend was 10% of the outstanding shares instead of 100% of the issued shares. What is the total amount of paid in capital, exclusive of legal capital, after recording the declaration of the stock dividend?
$2,210,000.
$1,537,500.
$2,192,500.
$1,610,000.
8. Refer to the previous question. Assume the stock dividend was 10% of the issued shares instead of 10% of the outstanding shares. On the declaration date, in the journal entry to record the stock dividend,
A. Retained earnings should be debited for $210,000.
B. Paid in capital-stock dividends should be credited for $150,000.
C. A and B.
D. Neither A nor B.
9. The Board of Directors of Able Company is pondering whether to declare a 50% stock dividend or a 3 for 2 stock split. The Board wants to know which of the following statements is correct?
A. The amount reported for retained earnings would be larger if the Board decided to declare the 3 for 2 split.
B. The amount reported for total paid in capital, including legal capital, would be larger if the Board declared the 50% stock dividend.
C. A and B.
D. Neither A nor B.
10. Compare the stockholder equity effects of a 2 for 1 stock split with the stockholder equity effects of a100% stock dividend for Hub Co. when the market value of Hub's common stock is greater than its par value. Which of the following statements is correct?
A. The amount reported for common stock would be larger if Hub declared the stock dividend.
B. The amount reported for total stockholders' equity would be larger if Hub declared the split.
C. A and B.
D. Neither A nor B.
11. Compare the stockholder equity effects of a 30% stock dividend with the stockholder equity effects of a 10% stock dividend for Lori Co. when the market value of Lori's common stock is greater than its stated value. Which of the following statements is correct?
A. The amount reported for total stockholders' equity would be larger if the 10% dividend was declared instead of the 30% dividend.
B. Paid in capital-stock dividends would be larger if the 10% stock dividend was declared instead of the 30% dividend.
C. A and B.
D. Neither A nor B.